There are many strategies for retirement saving, but perhaps the single most common piece of savings advice is to start early. And whether you've got a little money to invest or a lot, the earlier you get started the sooner you're on your way to a solid future. And as you explore your options, you're bound to start wondering, "What is an IRA, anyway?"
What is an IRA?
One fundamental method of saving for retirement is opening an individual retirement account, or IRA. An IRA is simply an account that may hold investments such as stocks, bonds, mutual funds, CDs or other assets. Unlike a 401K, which is typically opened by an employer, an IRA is usually opened by you, personally — thus the "I" as in "Individual."
Placing your savings into an IRA affords tax advantages, making it a preferred method for a number of retirement savings plans. There are a few different types of IRAs, with varying tax benefits, to consider for your particular savings goals:
- Traditional — With a Traditional IRA, you can take a deduction subject to income limitations toward your savings, up to an amount specified by the IRS. Your money is taxed when it is disbursed to you during retirement, which you can begin taking without penalty at age 59.
- Roth — Contributions are made to a Roth IRA after tax, and distributions can be made tax-free after age 59. Since you pay taxes on the front end, you don't have to worry about it later. You can contribute to both a Traditional and Roth IRA in the same year, but the maximum applies to the combined accounts.
- SEP — A Simplified Employee Pension is an account established by an employer or by someone who is self-employed. Like a Traditional IRA, you can take a deduction subject to income limitations and its disbursements are taxable. However, there's no minimum annual contribution and the maximum is up to 25% of an employee's compensation.
Now that we've answered the question "What is an IRA?" let's consider how to get your IRA started. At Ally Bank, you can open an IRA CD or IRA Online Savings Account to take advantage of great rates while saving for your future. Moreover, we offer the IRA Raise Your Rate 2- and 4-year CDs, which give you the option to increase your rate once (for a 2-year term) or twice (for a 4-year term) if our rates on these IRA CDs go up any time during your CD's term.
Plus, our interest rates are consistently among the most competitive in the country. And if you prefer to talk to a live person, we provide 24/7 customer service, so there's always someone available to speak to if you need help with a transaction.